Vanguard FTSE International Index Funds

Transcription

1 Annual Report Vanguard FTSE International Index Funds Vanguard FTSE All-World ex-us Index Fund Vanguard FTSE All-World ex-us Small-Cap Index Fund

2 Vanguard s Principles for Investing Success We want to give you the best chance of investment success. These principles, grounded in Vanguard s research and experience, can put you on the right path. Goals. Create clear, appropriate investment goals. Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost. Discipline. Maintain perspective and long-term discipline. A single theme unites these principles: Focus on the things you can control. We believe there is no wiser course for any investor. Contents Your Fund s Performance at a Glance Chairman s Perspective FTSE All-World ex-us Index Fund FTSE All-World ex-us Small-Cap Index Fund Your Fund s After-Tax Returns About Your Fund s Expenses Glossary Please note: The opinions expressed in this report are just that informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus. See the Glossary for definitions of investment terms used in this report. About the cover: Nautical images have been part of Vanguard s rich heritage since its start in For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first and light the way as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.

3 Your Fund s Performance at a Glance Global stocks rallied during the 12 months ended, amid a broadbased expansion featuring economic growth, supportive monetary policy, and benign inflation. For the fiscal year, Vanguard FTSE All-World ex-us Index Fund returned a little less than 24% and Vanguard FTSE All-World ex-us Small-Cap Index Fund returned about 24%. Both funds tracked their benchmark indexes. The FTSE All-World ex-us Index Fund s results slightly exceeded the average return of peer funds, while the FTSE All-World ex-us Small-Cap Index Fund lagged its peers. Returns for European stocks, which represent a sizable portion of both funds assets, were especially robust. In general, the region s economies continued to show strength in employment and industrial production. For both funds, strong returns from the financial and the industrial sectors helped power overall performance. Total Returns: Fiscal Year Ended Total Returns Vanguard FTSE All-World ex-us Index Fund Investor 23.62% ETF Price Net Asset Admiral Institutional Institutional Plus FTSE All-World ex US Index International Funds Average International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. 1

4 Total Returns Vanguard FTSE All-World ex-us Small-Cap Index Fund Investor 24.02% ETF Price Net Asset Institutional FTSE Global Small Cap ex US Index International Small-Cap Funds Average International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Admiral carry lower expenses and are available to investors who meet certain account-balance requirements. Institutional and Institutional Plus are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. For the ETF, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF ' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF ' market price was above or below the NAV. Total Returns: Ten Years Ended Average Annual Return FTSE All-World ex-us Index Fund Investor 1.00% FTSE All-World ex US Index 1.36 International Funds Average 0.84 International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. FTSE All-World ex-us Small-Cap Index Fund Investor (Returns since inception: 4/2/2009) 12.55% FTSE Global Small Cap ex US Index International Small-Cap Funds Average International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor s shares, when sold, could be worth more or less than their original cost. 2

5 Expense Ratios Your Fund Compared With Its Peer Group Investor ETF Admiral Institutional Institutional Plus Peer Group Average FTSE All-World ex-us Index Fund 0.23% 0.11% 0.11% 0.10% 0.07% 1.34% FTSE All-World ex-us Small-Cap Index Fund The fund expense ratios shown are from the prospectus dated February 24, 2017, and represent estimated costs for the current fiscal year. For the fiscal year ended, the funds expense ratios were: for the FTSE All-World ex-us Index Fund, 0.23% for Investor, 0.11% for ETF, 0.11% for Admiral, 0.10% for Institutional, and 0.07% for Institutional Plus ; and for the FTSE All-World ex-us Small-Cap Index Fund, 0.25% for Investor, 0.13% for ETF, and 0.12% for Institutional. The peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end Peer groups: For the FTSE All-World ex-us Index Fund, International Funds; and for the FTSE All-World ex-us Small-Cap Index Fund, International Small-Cap Funds. 3

6 Chairman s Perspective Dear Shareholder, When I find outstanding products or services, I m likely to be loyal to them. And my loyalty usually gets rewarded as I experience consistently high quality whether it s from a favorite restaurant or a favorite author. What s past, in most cases, is prologue. Bill McNabb Chairman and Chief Executive Officer As tempting as it is to apply this rationale to investing for example, if technology stocks have done well this year, they re bound to do well the next it s not all that helpful and can actually be counterproductive. You ve heard it many times: Past performance cannot be used to predict future returns. Taking a new approach The caution about past performance is so familiar that investors are apt to treat it as mere background noise. That s why past-performance bias merited a fresh look from Vanguard s Investment Strategy Group, which tackled the issue last year in a research paper. (I encourage you to read the full paper, Reframing Investor Choices: Right Mindset, Wrong, at vanguard.com/research.) Our strategists were hardly the first to delve into the topic, but they approached it in a new way. They started with the premise that it s perfectly understandable for investors to lean heavily on past performance, because that works well in many areas of life. After all, as the paper describes, in lots of other industries and realms, performance from one time period 4

7 to another is extremely consistent. The researchers looked at everything from cars to fine restaurants to heart surgeons, and in all these examples, past performance was a good predictor of later outcomes. It s different with investing In a nutshell, our brains typically are rewarded and our satisfaction is boosted when we use past performance as a guide for navigating decisions, big and small. But when applied to investing, this method breaks down. Why? Among other reasons, topperforming asset classes one year tend not to repeat as leaders the next. Strong past performance leads to higher valuations, making an investment, all else being equal, less attractive in the future. The data are quite overwhelming in this regard. By allowing past performance to inform their decisions, individual and institutional investors inadvertently end up as momentum investors, putting them on a treadmill of buying high and selling low. A path to better decision-making Of course, many investors are already aware of the pitfalls of projecting past performance into the future. The real question is, what can we all do about it? What does it take to go from having a general awareness to actually changing our behavior? Barometer Average Annual Total Returns Periods Ended One Year Three Years Five Years Stocks Russell 1000 Index (Large-caps) 23.67% 10.58% 15.18% Russell 2000 Index (Small-caps) Russell 3000 Index (Broad U.S. market) FTSE All-World ex US Index (International) Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) 0.90% 2.40% 2.04% Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) Citigroup Three-Month U.S. Treasury Bill Index CPI Consumer Price Index 2.04% 1.28% 1.29% 5

8 Acknowledging that such change isn t easy, our strategists offered a few ideas for reframing how investors approach their decisions. These recommendations were targeted at advisors working with clients, but they apply equally to individuals and institutions: Educate yourself. The more investors understand why a method that works so well in other areas of life relying on past performance to drive decisions doesn t carry over to investing, the better off they ll be. Be disciplined. The bias toward past performance is ingrained in everybody, professionals included, and shifting away from it can be difficult. But the long-term benefits make the effort worthwhile. Focus on what you can control. It s always most constructive for investors to concentrate on what s actually within their control, such as setting goals, following long-term portfolio construction principles, selecting low-cost investments, and rebalancing periodically. Here s to keeping the past in the rearview mirror. And, as always, thank you for investing with Vanguard. Sincerely, F. William McNabb III Chairman and Chief Executive Officer November 14,

9 FTSE All-World ex-us Index Fund Fund Profile As of Share-Class Characteristics Investor ETF Admiral Institutional Institutional Plus Ticker Symbol VFWIX VEU VFWAX VFWSX VFWPX Expense Ratio % 0.11% 0.11% 0.10% 0.07% Portfolio Characteristics FTSE All-World Fund ex US Index Number of Stocks 2,669 2,539 Median Cap $33.3B $33.6B Price/Earnings Ratio 16.1x 16.1x Price/Book Ratio 1.7x 1.7x Return on Equity 12.0% 12.0% Earnings Growth Rate 6.6% 6.9% Dividend Yield 2.7% 2.8% Turnover Rate 4% Short-Term Reserves -0.4% Sector Diversification (% of equity exposure) FTSE All-World Fund ex US Index Basic Materials 7.7% 7.7% Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Technology Telecommunications Utilities Sector categories are based on the Industry Classification Benchmark ( ICB ), except for the Other category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period. Volatility Measures FTSE All-World ex US Index R-Squared 0.98 Beta 0.94 These measures show the degree and timing of the fund s fluctuations compared with the index over 36 months. Ten Largest Holdings (% of total net assets) Samsung Electronics Co. Ltd. Consumer Electronics 1.2% Royal Dutch Shell plc Integrated Oil & Gas 1.2 Nestle SA Food Products 1.2 Tencent Holdings Ltd. Internet 1.1 Taiwan Semiconductor Manufacturing Co. Ltd. Semiconductors 0.9 HSBC Holdings plc Banks 0.9 Novartis AG Pharmaceuticals 0.9 Roche Holding AG Pharmaceuticals 0.8 Toyota Motor Corp. Automobiles 0.7 Unilever Personal Products 0.7 Top Ten 9.6% The holdings listed exclude any temporary cash investments and equity index products. Allocation by Region (% of equity exposure) 44.2% Europe 30.0% Pacific 19.6% Emerging s 5.9% North America 0.3% Middle East 1 The expense ratios shown are from the prospectus dated February 24, 2017, and represent estimated costs for the current fiscal year. For the fiscal year ended, the expense ratios were 0.23% for Investor, 0.11% for ETF, 0.11% for Admiral, 0.10% for Institutional, and 0.07% for Institutional Plus. 7

10 FTSE All-World ex-us Index Fund Diversification (% of equity exposure) FTSE All-World ex US Fund Index Europe United Kingdom 12.5% 12.5% France Germany Switzerland Netherlands Spain Sweden Italy Denmark Other Subtotal 44.2% 44.3% Pacific Japan 17.7% 17.5% Australia South Korea Hong Kong Other Subtotal 30.0% 29.9% Emerging s China 5.8% 5.8% Taiwan India Brazil South Africa Other Subtotal 19.6% 19.6% North America Canada 5.9% 5.9% Middle East 0.3% 0.3% 8

11 FTSE All-World ex-us Index Fund Performance Summary All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Cumulative Performance: October 31, 2007, Through Initial Investment of $10,000 $15,000 11, ,000 Average Annual Total Returns Periods Ended One Year Five Years Ten Years Final of a $10,000 Investment FTSE All-World ex-us Index Fund Investor 23.62% 7.49% 1.00% $11,046 FTSE All-World ex US Index ,450 International Funds Average ,870 FTSE Global All Cap ex US Index ,490 International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. One Year Five Years Ten Years Final of a $10,000 Investment FTSE All-World ex-us Index Fund ETF Net Asset 23.73% 7.64% 1.15% $11,207 FTSE All-World ex US Index ,450 FTSE Global All Cap ex US Index ,490 See Financial Highlights for dividend and capital gains information. 9

12 FTSE All-World ex-us Index Fund One Year Average Annual Total Returns Periods Ended Five Years Since Inception (9/27/2011) Final of a $10,000 Investment FTSE All-World ex-us Index Fund Admiral 23.75% 7.64% 8.43% $16,372 FTSE All-World ex US Index ,339 FTSE Global All Cap ex US Index ,423 "Since Inception" performance is calculated from the Admiral inception date for both the fund and its comparative standards. One Year Five Years Ten Years Final of a $5,000,000 Investment FTSE All-World ex-us Index Fund Institutional 23.74% 7.65% 1.19% $5,626,187 FTSE All-World ex US Index ,725,221 FTSE Global All Cap ex US Index ,744,800 One Year Five Years Since Inception (12/16/2010) Final of a $100,000,000 Investment FTSE All-World ex-us Index Fund Institutional Plus 23.79% 7.68% 5.19% $141,552,050 FTSE All-World ex US Index ,194,690 FTSE Global All Cap ex US Index ,651,256 "Since Inception" performance is calculated from the Institutional Plus inception date for both the fund and its comparative standards. Cumulative Returns of ETF : October 31, 2007, Through One Year Five Years Ten Years FTSE All-World ex-us Index Fund ETF Price 23.77% 44.42% 11.88% FTSE All-World ex-us Index Fund ETF Net Asset FTSE All-World ex US Index

13 FTSE All-World ex-us Index Fund Fiscal-Year Total Returns (%): October 31, 2007, Through FTSE All-World ex-us Index Fund Investor FTSE All-World ex US Index Index returns are adjusted for withholding taxes applicable to U.S.-based mutual funds organized as Delaware statutory trusts. Average Annual Total Returns: Periods Ended September 30, 2017 This table presents returns through the latest calendar quarter rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information. Inception Date One Year Five Years Ten Years Investor 3/8/ % 7.21% 1.43% ETF 3/2/2007 Price Net Asset Admiral 9/27/ Institutional 4/30/ Institutional Plus 12/16/ Return since inception. 11

14 FTSE All-World ex-us Index Fund Financial Statements Statement of Net Assets Investments Summary As of This Statement summarizes the fund s holdings by asset type. Details are reported for each of the fund s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund s net assets. The total value of smaller holdings is reported as a single amount within each category. The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission s website (sec.gov), or you can have it mailed to you without charge by calling For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund s Forms N-Q on the SEC s website. Forms N-Q may also be reviewed and copied at the SEC s Public Reference Room (see the back cover of this report for further information). Percentage of Net Assets Common Stocks Australia Commonwealth Bank of Australia 2,834, , % Westpac Banking Corp. 5,558, , % Australia & New Zealand Banking Group Ltd. 4,809, , % National Australia Bank Ltd. 4,376, , % BHP Billiton Ltd. 5,264, , % Australia Other 1,080, % 1,718, % Austria 62, % Belgium Anheuser-Busch InBev SA/NV 1,242, , % Belgium Other 144, % 296, % Brazil CPFL Energia SA 661,392 5, % Brazil Other 620, % 625, % Canada Royal Bank of Canada 2,383, , % Toronto-Dominion Bank 3,039, , % Bank of Nova Scotia 1,974, , % Enbridge Inc. 2,674, , % Canadian National Railway Co. 1,228,269 98, % 1 Canada Other 1,414, % 2,102, % 12

15 FTSE All-World ex-us Index Fund Percentage of Net Assets Chile 107, % China Tencent Holdings Ltd. 8,741, , % China Construction Bank Corp. 146,462, , % Industrial & Commercial Bank of China Ltd. 128,030, , % China Mobile Ltd. 8,664,567 87, % Bank of China Ltd. 124,806,788 62, % China Life Insurance Co. Ltd. 12,214,341 40, % CNOOC Ltd. 26,187,400 35, % China Petroleum & Chemical Corp. 42,031,284 30, % PetroChina Co. Ltd. 34,147,234 22, % China Overseas Land & Investment Ltd. 6,347,820 20, % Agricultural Bank of China Ltd. 41,894,233 19, % PICC Property & Casualty Co. Ltd. 7,462,396 14, % China Shenhua Energy Co. Ltd. 5,596,388 13, % China Resources Land Ltd. 4,442,214 13, % * China Unicom Hong Kong Ltd. 8,958,713 12, % CITIC Ltd. 8,197,275 12, % China Telecom Corp. Ltd. 23,215,541 11, % China CITIC Bank Corp. Ltd. 13,800,362 8, % China Communications Construction Co. Ltd. 7,297,026 8, % China Taiping Insurance Holdings Co. Ltd. 2,433,564 8, % Sinopharm Group Co. Ltd. 1,752,503 7, % China Resources Beer Holdings Co. Ltd. 2,635,860 7, % 1 People s Insurance Co. Group of China Ltd. 14,501,161 6, % Dongfeng Motor Group Co. Ltd. 4,784,627 6, % CRRC Corp. Ltd. 6,499,053 6, % China Everbright International Ltd. 4,520,967 6, % China Merchants Port Holdings Co. Ltd. 2,020,031 6, % China Resources Power Holdings Co. Ltd. 3,230,409 6, % China Cinda Asset Management Co. Ltd. 15,862,693 6, % 1 Postal Savings Bank of China Co. Ltd. 9,481,000 5, % 1 CGN Power Co. Ltd. 19,354,267 5, % 1 China Galaxy Securities Co. Ltd. 6,147,777 5, % China Railway Group Ltd. 6,085,352 4, % * Zhuzhou CRRC Times Electric Co. Ltd. 818,209 4, % China State Construction International Holdings Ltd. 3,382,567 4, % China Resources Gas Group Ltd. 1,296,547 4, % 1 China Huarong Asset Management Co. Ltd. 9,509,874 4, % China Longyuan Power Group Corp. Ltd. 5,448,785 4, % Kunlun Energy Co. Ltd. 4,309,523 3, % Beijing Capital International Airport Co. Ltd. 2,400,557 3, % China Railway Construction Corp. Ltd. 3,060,245 3, % China Jinmao Holdings Group Ltd. 7,954,005 3, % Sinopec Shanghai Petrochemical Co. Ltd. 5,642,331 3, % Air China Ltd. 2,938,115 2, % Huaneng Renewables Corp. Ltd. 7,951,075 2, % China Oilfield Services Ltd. 2,946,300 2, % China Everbright Bank Co. Ltd. 4,932,872 2, % China Southern Airlines Co. Ltd. 3,075,017 2, % China Reinsurance Group Corp. 10,063,576 2, % AviChina Industry & Technology Co. Ltd. 3,816,954 2, % Chongqing Changan Automobile Co. Ltd. Class B 1,473,451 1, % 13

16 FTSE All-World ex-us Index Fund Percentage of Net Assets 1 Sinopec Engineering Group Co. Ltd. 2,244,381 1, % China Resources Cement Holdings Ltd. 2,821,334 1, % 1 China Railway Signal & Communication Corp. Ltd. 2,399,068 1, % China Agri-Industries Holdings Ltd. 3,527,447 1, % ^ China Coal Energy Co. Ltd. 3,451,638 1, % China Power International Development Ltd. 4,905,787 1, % Angang Steel Co. Ltd. 1,769,537 1, % Metallurgical Corp. of China Ltd. 4,379,562 1, % China National Materials Co. Ltd. 1,960,369 1, % Sinotrans Ltd. 2,648,860 1, % China Eastern Airlines Corp. Ltd. 2,309,145 1, % Huadian Fuxin Energy Corp. Ltd. 4,004,005 1, % China BlueChemical Ltd. 3,067, % China Machinery Engineering Corp. 1,415, % China Foods Ltd. 1,206, % ^ CSSC Offshore and Marine Engineering Group Co. Ltd. 410, % Shanghai Baosight Software Co. Ltd. Class B 387, % *,^ Sinopec Oilfield Service Corp. 3,300, % ^ CITIC Resources Holdings Ltd. 4,332, % *,^ Sinofert Holdings Ltd. 2,319, % China National Accord Medicines Corp. Ltd. Class B 74, % 1,2 China Other 843, % 2,058, % Colombia 35, % 1Czech Republic 14, % Denmark Novo Nordisk A/S Class B 2,881, , % 1 Denmark Other 295, % 438, % Egypt 12, % Finland 248, % France TOTAL SA 3,612, , % Sanofi 1,787, , % BNP Paribas SA 1,768, , % LVMH Moet Hennessy Louis Vuitton SE 407, , % 1 France Other 1,874, % 2,504, % Germany Siemens AG 1,244, , % Bayer AG 1,356, , % Allianz SE 729, , % SAP SE 1,483, , % BASF SE 1,497, , % Daimler AG 1,577, , % 1 Germany Other 1,402, % 2,392, % 14

17 FTSE All-World ex-us Index Fund Percentage of Net Assets Greece 28, % Hong Kong AIA Group Ltd. 19,780, , % BOC Hong Kong Holdings Ltd. 5,877,196 28, % *,1 China Resources Pharmaceutical Group Ltd. 2,579,000 3, % Nexteer Automotive Group Ltd. 1,317,000 2, % 1 BOC Aviation Ltd. 304,000 1, % China Travel International Investment Hong Kong Ltd. 3,855,542 1, % 1,2 Hong Kong Other 750, % 936, % Hungary 31, % India Nestle India Ltd. 36,645 4, % 1 India Other 860, % 864, % Indonesia 171, % 2Ireland 62, % Israel 109, % Italy *,1 Pirelli & C SPA 569,259 4, % 1 Italy Other 641, % 646, % Japan Toyota Motor Corp. 4,280, , % Mitsubishi UFJ Financial Group Inc. 21,051, , % SoftBank Group Corp. 1,393, , % Japan Other 5,734, % 6,266, % 1,2Malaysia 221, % 2Malta 0.0% 1Mexico 278, % Netherlands ^ Unilever NV 2,502, , % ING Groep NV 6,362, , % 1 Netherlands Other 582, % 845, % New Zealand 54, % Norway 161, % 15

18 FTSE All-World ex-us Index Fund Percentage of Net Assets Other 3 4 Vanguard FTSE Emerging s ETF 2,014,441 89, % Other Other 1, % 91, % Pakistan 5, % Peru 27, % Philippines 113, % 1Poland 118, % Portugal 38, % Qatar 47, % 1Russia 296, % Singapore 325, % South Africa Naspers Ltd. 697, , % 1,2 South Africa Other 391, % 561, % South Korea Samsung Electronics Co. Ltd. GDR 246, , % Samsung Electronics Co. Ltd. 35,317 87, % Samsung Electronics Co. Ltd. Preference 28,493 57, % 1,2 South Korea Other 867, % 1,315, % Spain Banco Santander SA 25,861, , % 1 Spain Other 653, % 829, % Sweden 715, % Switzerland Nestle SA 5,078, , % Novartis AG 3,851, , % Roche Holding AG 1,142, , % Switzerland Other 981, % 1,990, % Taiwan Taiwan Semiconductor Manufacturing Co. Ltd. ADR 5,995, , % Taiwan Other 748, % 1,002, % Thailand 255, % 16

19 FTSE All-World ex-us Index Fund Percentage of Net Assets Turkey 91, % United Arab Emirates 72, % United Kingdom HSBC Holdings plc 32,873, , % British American Tobacco plc 3,625, , % Royal Dutch Shell plc Class A 7,406, , % BP plc 31,567, , % Royal Dutch Shell plc Class B 6,074, , % GlaxoSmithKline plc 7,914, , % AstraZeneca plc 2,075, , % Diageo plc 4,046, , % Vodafone Group plc 43,648, , % Unilever plc 1,926, , % Lloyds Banking Group plc 116,888, , % Prudential plc 4,233, , % 1 United Kingdom Other 2,364, % 4,427, % Total Common Stocks (Cost $29,778,120) 35,621, % 5 Coupon Preferred Stocks (Cost $ 415) % Temporary Cash Investments 6,7 Vanguard Liquidity Fund 1.246% 5,193, , % 8,9U.S. Government and Agency Obligations 15, % Total Temporary Cash Investments (Cost $534,893) 534, % 5 Total Investments (Cost $30,313,428) 36,156, % 17

20 FTSE All-World ex-us Index Fund Percentage Amount of Net Assets Other Assets and Liabilities Other Assets Investment in Vanguard 2,124 Receivables for Investment Securities Sold 167 Receivables for Accrued Income 108,245 Receivables for Capital Issued 8,478 Variation Margin Receivable Futures Contracts 732 Unrealized Appreciation Forward Currency Contracts 1,033 Other Assets 9 23,491 Total Other Assets 144, % Liabilities Payables for Investment Securities Purchased (1,130) Collateral for Securities on Loan (431,519) Payables for Capital Redeemed (7,779) Payables to Vanguard (13,188) Variation Margin Payable Futures Contracts (353) Unrealized Depreciation Forward Currency Contracts (6,028) Other Liabilities (59) Total Liabilities (460,056) (1.3%) Net Assets 35,840, % At, net assets consisted of: Amount Paid-in Capital 31,266,442 Undistributed Net Investment Income 67,906 Accumulated Net Realized Losses (1,340,472) Unrealized Appreciation (Depreciation) Investment Securities 5,843,226 Futures Contracts 10,307 Forward Currency Contracts (4,995) Foreign Currencies (1,546) Net Assets 35,840,868 Investor Net Assets Applicable to 29,963,651 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 634,277 Net Asset Per Share Investor $21.17 ETF Net Assets Applicable to 403,331,765 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 21,639,662 Net Asset Per Share ETF $

21 FTSE All-World ex-us Index Fund Amount Admiral Net Assets Applicable to 159,028,494 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 5,303,545 Net Asset Per Share Admiral $33.35 Institutional Net Assets Applicable to 52,326,490 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 5,532,029 Net Asset Per Share Institutional $ Institutional Plus Net Assets Applicable to 24,396,360 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 2,731,355 Net Asset Per Share Institutional Plus $ See Note A in Notes to Financial Statements. * Non-income-producing security. ^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $336,037,000. Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets. 1 Certain of the fund s securities are exempt from registration under Rule 144A of the Securities Act of Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At, the aggregate value of these securities was $340,183,000, representing 0.9% of net assets. 2 Certain of the fund s securities are valued using significant unobservable inputs. 3 Other represents securities that are not classified by the fund s benchmark index. 4 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. 5 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund s effective common stock and temporary cash investment positions represent 100.0% and 0.9%, respectively, of net assets. 6 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 7 Includes $431,519,000 of collateral received for securities on loan. 8 Securities with a value of $11,600,000 have been segregated as initial margin for open futures contracts. 9 Securities with a value of $500,000 and cash of $4,900,000 have been segregated as collateral for open forward currency contracts. ADR American Depositary Receipt. GDR Global Depositary Receipt. 19

22 FTSE All-World ex-us Index Fund Derivative Financial Instruments Outstanding as of Period End Futures Contracts and Number of Unrealized Long (Short) Notional Appreciation Expiration Contracts Amount (Depreciation) Long Futures Contracts Dow Jones EURO STOXX 50 December ,132 91,350 3,752 Topix Index December ,491 5,719 FTSE 100 Index December , S&P ASX 200 Index December , ,307 Unrealized appreciation (depreciation) on open Dow Jones EURO STOXX 50 and FTSE 100 Index futures contracts is required to be treated as realized gain (loss) for tax purposes. Forward Currency Contracts Unrealized Contract Appreciation Settlement Contract Amount (000) (Depreciation) Counterparty Date Receive Deliver Barclays Bank plc 12/20/17 EUR 60,200 USD 72,326 (1,993) BNP Paribas 12/12/17 JPY 5,497,504 USD 50,946 (2,496) Toronto-Dominion Bank 12/20/17 GBP 27,100 USD 36,083 (31) Toronto-Dominion Bank 12/28/17 AUD 22,800 USD 18,235 (794) BNP Paribas 12/20/17 EUR 13,626 USD 16,050 (130) Toronto-Dominion Bank 12/20/17 EUR 10,764 USD 12,801 (225) UBS AG 12/12/17 JPY 1,052,450 USD 9,406 (131) Credit Suisse International 12/20/17 GBP 6,389 USD 8, Toronto-Dominion Bank 12/20/17 GBP 5,399 USD 7, JPMorgan Chase Bank, N.A. 12/12/17 JPY 772,860 USD 6, Citibank, N.A. 12/12/17 JPY 707,070 USD 6,286 (55) JPMorgan Chase Bank, N.A. 12/20/17 GBP 4,497 USD 5, Barclays Bank plc 12/28/17 AUD 4,022 USD 3,128 (52) Goldman Sachs International 12/28/17 AUD 3,236 USD 2,497 (22) BNP Paribas 12/28/17 AUD 2,394 USD 1,862 (31) Credit Suisse International 12/12/17 JPY 29,726 USD 275 (14) BNP Paribas 12/12/17 USD 40,872 JPY 4,578, Toronto-Dominion Bank 12/20/17 USD 11,362 EUR 9, Toronto-Dominion Bank 12/12/17 USD 9,806 JPY 1,103,

23 FTSE All-World ex-us Index Fund Forward Currency Contracts (continued) Unrealized Contract Appreciation Settlement Contract Amount (000) (Depreciation) Counterparty Date Receive Deliver Toronto-Dominion Bank 12/20/17 USD 6,633 GBP 5,027 (54) Toronto-Dominion Bank 12/28/17 USD 2,620 AUD 3, UBS AG 12/28/17 USD 939 AUD 1, AUD Australian dollar. EUR Euro. GBP British Pound. JPY Japanese yen. USD U.S. dollar. Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes. (4,995) See accompanying Notes, which are an integral part of the Financial Statements. 21

24 FTSE All-World ex-us Index Fund Statement of Operations Year Ended October Investment Income Income Dividends 1,2 858,205 Interest Securities Lending Net 15,140 Total Income 874,241 Expenses The Vanguard Group Note B Investment Advisory Services 3,122 Management and Administrative Investor 993 Management and Administrative ETF 12,595 Management and Administrative Admiral 3,060 Management and Administrative Institutional 3,365 Management and Administrative Institutional Plus 913 ing and Distribution Investor 116 ing and Distribution ETF 815 ing and Distribution Admiral 392 ing and Distribution Institutional 103 ing and Distribution Institutional Plus 29 Custodian Fees 5,421 Auditing Fees 42 Shareholders Reports and Proxy Investor 55 Shareholders Reports and Proxy ETF 930 Shareholders Reports and Proxy Admiral 120 Shareholders Reports and Proxy Institutional 42 Shareholders Reports and Proxy Institutional Plus 22 Trustees Fees and Expenses 21 Total Expenses 32,156 Net Investment Income 842,085 Realized Net Gain (Loss) Investment Securities Sold 2 (227,585) Futures Contracts 30,608 Foreign Currencies and Forward Currency Contracts (3,401) Realized Net Gain (Loss) (200,378) Change in Unrealized Appreciation (Depreciation) Investment Securities 2 5,767,921 Futures Contracts 4,155 Foreign Currencies and Forward Currency Contracts 4,174 Change in Unrealized Appreciation (Depreciation) 5,776,250 Net Increase (Decrease) in Net Assets Resulting from Operations 6,417,957 1 Dividends are net of foreign withholding taxes of $67,168, Dividend income, interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from affiliated companies of the fund were $1,455,000, $746,000, $721,000, and $6,786,000, respectively. See accompanying Notes, which are an integral part of the Financial Statements. 22

25 FTSE All-World ex-us Index Fund Statement of Changes in Net Assets Year Ended October 31, Increase (Decrease) in Net Assets Operations Net Investment Income 842, ,705 Realized Net Gain (Loss) (200,378) 37,290 Change in Unrealized Appreciation (Depreciation) 5,776,250 (527,012) Net Increase (Decrease) in Net Assets Resulting from Operations 6,417, ,983 Distributions Net Investment Income Investor (15,595) (15,116) ETF (498,013) (386,248) Admiral (122,709) (95,215) Institutional (139,459) (126,359) Institutional Plus (67,584) (70,228) Realized Capital Gain Investor ETF Admiral Institutional Institutional Plus Total Distributions (843,360) (693,166) Capital Share Transactions Investor (3,346) (24,599) ETF 4,378, ,493 Admiral 846, ,292 Institutional 182,946 7,308 Institutional Plus 67,822 (383,469) Net Increase (Decrease) from Capital Share Transactions 5,471, ,025 Total Increase (Decrease) 11,046, ,842 Net Assets Beginning of Period 24,794,448 24,382,606 End of Period 1 35,840,868 24,794,448 1 Net Assets End of Period includes undistributed (overdistributed) net investment income of $67,906,000 and $71,432,000. See accompanying Notes, which are an integral part of the Financial Statements. 23

26 FTSE All-World ex-us Index Fund Financial Highlights Investor For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $17.59 $17.92 $19.40 $19.81 $17.03 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (.341) (1.484) (.413) Total from Investment Operations (.982) Distributions Dividends from Net Investment Income (.513) (.483) (.498) (.624) (.552) Distributions from Realized Capital Gains Total Distributions (.513) (.483) (.498) (.624) (.552) Net Asset, End of Period $21.17 $17.59 $17.92 $19.40 $19.81 Total Return % 0.98% -5.16% 1.05% 19.97% Ratios/Supplemental Data Net Assets, End of Period (Millions) $634 $530 $565 $552 $637 Ratio of Total Expenses to Average Net Assets 0.23% 0.23% 0.26% 0.29% 0.30% Ratio of Net Investment Income to Average Net Assets 2.70% 2.89% 2.70% 3.18% % Portfolio Turnover Rate 4 4% 5% 3% 4% 8% 1 Calculated based on average shares outstanding. 2 Net investment income per share and the ratio of net investment income to average net assets include $.088 and 0.44%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. 4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 24

27 FTSE All-World ex-us Index Fund Financial Highlights ETF For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $44.60 $45.41 $49.17 $50.20 $43.21 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (.846) (3.769) (1.036) Total from Investment Operations (2.434) Distributions Dividends from Net Investment Income (1.367) (1.268) (1.326) (1.659) (1.509) Distributions from Realized Capital Gains Total Distributions (1.367) (1.268) (1.326) (1.659) (1.509) Net Asset, End of Period $53.65 $44.60 $45.41 $49.17 $50.20 Total Return 23.73% 1.17% -5.05% 1.21% 20.12% Ratios/Supplemental Data Net Assets, End of Period (Millions) $21,640 $13,983 $13,525 $12,453 $11,102 Ratio of Total Expenses to Average Net Assets 0.11% 0.11% 0.13% 0.14% 0.15% Ratio of Net Investment Income to Average Net Assets 2.82% 3.01% 2.83% 3.33% % Portfolio Turnover Rate 3 4% 5% 3% 4% 8% 1 Calculated based on average shares outstanding. 2 Net investment income per share and the ratio of net investment income to average net assets include $.224 and 0.44%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 25

28 FTSE All-World ex-us Index Fund Financial Highlights Admiral For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $27.72 $28.23 $30.57 $31.21 $26.86 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (.532) (2.346) (.644) Total from Investment Operations (1.514) Distributions Dividends from Net Investment Income (.850) (.789) (.826) (1.033) (.942) Distributions from Realized Capital Gains Total Distributions (.850) (.789) (.826) (1.033) (.942) Net Asset, End of Period $33.35 $27.72 $28.23 $30.57 $31.21 Total Return % 1.13% -5.05% 1.23% 20.14% Ratios/Supplemental Data Net Assets, End of Period (Millions) $5,304 $3,635 $3,163 $2,551 $1,909 Ratio of Total Expenses to Average Net Assets 0.11% 0.11% 0.13% 0.14% 0.15% Ratio of Net Investment Income to Average Net Assets 2.82% 3.01% 2.83% 3.33% % Portfolio Turnover Rate 4 4% 5% 3% 4% 8% 1 Calculated based on average shares outstanding. 2 Net investment income per share and the ratio of net investment income to average net assets include $.139 and 0.44%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. 4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 26

29 FTSE All-World ex-us Index Fund Financial Highlights Institutional For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $87.88 $89.48 $96.89 $98.93 $85.14 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (1.669) (7.429) (2.049) Total from Investment Operations (4.778) Distributions Dividends from Net Investment Income (2.701) (2.508) (2.632) (3.290) (3.002) Distributions from Realized Capital Gains Total Distributions (2.701) (2.508) (2.632) (3.290) (3.002) Net Asset, End of Period $ $87.88 $89.48 $96.89 $98.93 Total Return % 1.15% -5.03% 1.23% 20.16% Ratios/Supplemental Data Net Assets, End of Period (Millions) $5,532 $4,424 $4,501 $4,713 $4,687 Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.11% 0.12% 0.12% Ratio of Net Investment Income to Average Net Assets 2.83% 3.02% 2.85% 3.35% % Portfolio Turnover Rate 4 4% 5% 3% 4% 8% 1 Calculated based on average shares outstanding. 2 Net investment income per share and the ratio of net investment income to average net assets include $.441 and 0.44%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees. 4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 27

30 FTSE All-World ex-us Index Fund Financial Highlights Institutional Plus For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $93.06 $94.75 $ $ $90.17 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (1.767) (7.869) (2.169) Total from Investment Operations (5.040) Distributions Dividends from Net Investment Income (2.891) (2.677) (2.810) (3.508) (3.209) Distributions from Realized Capital Gains Total Distributions (2.891) (2.677) (2.810) (3.508) (3.209) Net Asset, End of Period $ $93.06 $94.75 $ $ Total Return % 1.18% -5.01% 1.25% 20.18% Ratios/Supplemental Data Net Assets, End of Period (Millions) $2,731 $2,222 $2,628 $2,122 $1,671 Ratio of Total Expenses to Average Net Assets 0.07% 0.07% 0.09% 0.10% 0.10% Ratio of Net Investment Income to Average Net Assets 2.86% 3.05% 2.87% 3.37% % Portfolio Turnover Rate 4 4% 5% 3% 4% 8% 1 Calculated based on average shares outstanding. 2 Net investment income per share and the ratio of net investment income to average net assets include $.467 and 0.44%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees. 4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 28

31 FTSE All-World ex-us Index Fund Notes to Financial Statements Vanguard FTSE All-World ex-us Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund invests in securities of foreign issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. The fund offers five classes of shares: Investor, ETF, Admiral, Institutional, and Institutional Plus. Investor are available to any investor who meets the fund s minimum purchase requirements. ETF are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral, Institutional, and Institutional Plus are designed for investors who meet certain administrative, service, and account-size criteria. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. 1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund s pricing time but after the close of the securities primary markets, are valued by methods deemed by the board of trustees to represent fair value. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Liquidity Fund are valued at that fund s net asset value. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. 2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses). 3. Futures and Forward Currency Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the 29

32 FTSE All-World ex-us Index Fund underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund s performance and requires daily settlement of variation margin representing changes in the market value of each contract. The fund also enters into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts. The fund s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. The master netting arrangements provide that, in the event of a counterparty s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts contain provisions whereby a counterparty may terminate open contracts if the fund s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any assets pledged as collateral for open contracts are noted in the Statement of Net Assets. The value of collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days. Futures contracts are valued at their quoted daily settlement prices. Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts. During the year ended, the fund s average investments in long and short futures contracts each represented less than 1% of net assets, based on the average of the notional amounts at each quarter-end during the period. The fund s average investment in forward currency contracts represented 2% of net assets, based on the average of the notional amounts at each quarter-end during the period. 30